Tata Motors' credit-default swaps rise as sales drop

The perceived risk for owning debt of Tata Motors Ltd., India's biggest maker of trucks, rose to the highest in almost a year as vehicle sales declined for a second month.

Credit-default swaps based on $10 million of Tata Motors' debt rose 6 percent this month to $111,300, according to data compiled by Bloomberg.

An increase in the price indicates deterioration in investors' perceptions of the Mumbai-based company's ability to repay its debts.

The contracts last reached that high on July 17, 2006, according to CMA Datavision in New York. Credit default swaps in Asia and Europe also rose today, on concern losses on the riskiest U.S. home loans will slow economic growth.

Tata Motors, which plans to spend as much as Rs 120 billion ($3 billion) in the next three years to expand capacity and develop new vehicle models, this month said demand continued to be "sluggish" as higher interest rates hurt sales. It cut production of commercial vehicles in June.

"The last couple of months have been difficult for the company, but we do expect things to improve,'' said Ashutosh Goel, an analyst at Mumbai-based Edelweiss Capital Ltd, who rates the company's stocks a "buy.''

India's central bank has raised the benchmark overnight lending rate six times in the past 1 1/2 years to a five-year high to tame inflation.

Tata Motors last month sold $450 million of five-year convertible bonds to overseas investors to help meet expenditure plans and compete with Maruti Udyog Ltd., the country's biggest carmaker, and Ashok Leyland Ltd. Standard & Poor's in December raised the automaker's credit rating to the highest non-investment grade.

The automaker had the equivalent of $650 million of yen- and dollar-denominated bonds to repay by March 2011, Standard & Poor's said in December.